Green financing and politicians’ incentives: Evidence from proprietary loan assessment data
Prof. George Y. YANG
Professor
Director, School of Accountancy
Outstanding Fellow of the Faculty of Business Administration
Chinese University of Hong Kong
We examine the role of local politicians’ incentives on bank’s green loan decisions by obtaining a proprietary internal branch-loan level dataset on the borrowers’ environmental risk ratings from one of the largest banks in China. We first find that the bank’s environmental risk ratings of its borrowers reflect the real environmental risks that the borrowers face and that the bank prices the loans accordingly. Then, we find that the individual branch’s consideration of the borrowers’ environmental risk ratings weakens when city government leaders have political incentives to enhance local macroeconomic growth. Overall, we highlight that green financing initiatives are compromised and influenced by local officials’ political incentives.
